Vildirect: IncomeTax-caselaws-2019-VIL-983-ITAT-AHM

2019-VIL-983-ITAT-AHM

Income Tax Appellate Tribunal AHMEDABAD

ITA No.699/Ahd/2015 (Assessment Year: 2010-11)

Date: 12.12.2019

N.K. PROTEINS LTD.

THE PR. CIT-III AHMEDABAD

Appellant by: Shri S.N. Soparkar, AR
Respondent by: Shri O.P. Sharma, CIT-DR

BENCH

SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER

JUDGMENT

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Pr. Commissioner of Income Tax–3, Ahmedabad [Pr.CIT in short] dated 25/02/2015 arising in the assessment order passed under s. 143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 26/03/2013 relevant to Assessment Year (AY) 2010-11.

2. The assessee has raised the following grounds of appeal:-

1. Ld. CIT erred in law and on facts in invoking provisions of section 263 of the Act seeking to revise scrutiny assessment u/s.143(3) of the Act holding it as erroneous and prejudicial to the interest of revenue. The order of CIT directing AO to revise order that is neither erroneous nor prejudicial to the interest of revenue is unjust, untenable and against principles of Natural Justice that deserves to be quashed.

2. Ld. CIT erred in law and on facts in holding that revisionary proceedings on issues already examined by AO during assessment is permissible under law in case of inadequate inquiry. Ld. CIT erred in not appreciating that in fact the enquiry was not inadequate and alleged inadequate inquiry is not a ground to hold assessment order as erroneous or prejudicial to the interest of revenue.

3. Ld. CIT erred in law and on facts to hold that there was no application of mind by AO in absence of proper inquiry on submissions by the appellant. Ld. CIT ought to have appreciated that AO framed assessment after due verification of all details produced in response to questionnaire along with audited annual report, books of accounts & vouchers now on record. The order of ld. CIT deserves to be quashed.

4. Ld. CIT erred in law and on facts in setting aside scrutiny assessment order holding it erroneous and prejudicial to the interest of revenue directing AO to frame de novo assessment on the basis of presumption, conjucture and surmises ignoring detailed explanation along with documentary evidence submitted to AO as well in impugned proceedings on following issues –

(i) Verify correctness of claim of depreciation vis a vis existence of assets

(ii) Verify details of entire interest expenditure vis a vis revenue impact of margin money paid to NSE and of foreign currency receivable.

(iii) Verify valuation of closing stock vis a vis cost of the product.

(iv) Verify impact of liquidation of Visnagar Bank vis a vis outstanding loan with respect to provisions of section 41(1) of the Act.

(v) Verify transactions vis a vis violation of section 40(A)(3).

(vi) Verify compliance of TDS provision vis a vis allowability of expenses.

(vii) Verify transactions with NSEL vis a vis nature of loss whether bogus or genuine or speculative.

(viii) Verify revenue impact vis a vis proceeds from deposits, transactions covered u/s.40A(2)(b), cash credits, current liabilities etc.

5. Ld. CIT ought to have appreciated that silence on issues accepted by AO after proper scrutiny need not mean order as erroneous or prejudicial to the interest of revenue.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The issue raised by the assessee is that the learned Pr. CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue under the provisions of section 263 of the Act.

3. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of manufacturing and sale of edible and non-edible oil products/byproducts. The assessee has also shown the income drawn from the activity of hiring the vehicles. The assessee for the year under consideration filed its return of income dated 29th September 2010 declaring total income of Rs.15,31,24,189 only. However, the assessment was framed under section 143(3) of the Act for the year under consideration at the total income of Rs.15,47,54,611 after making the addition/disallowances of certain items vide order dated 25th March, 2013.

3.1. Subsequently, the learned Pr.CIT considered the order passed by the AO as erroneous insofar prejudicial to the interest of Revenue on account of certain irregularities/lapses observed from the assessment records. These irregularities/lapses observed by the learned Pr.CIT were on account of 7 items which has been detailed in his order dated 25-02-2015. But at the time of hearing before us the learned AR for the assessee agreed with the finding of the learned Pr.CIT in all the items where the irregularities /lapses were observed by the learned Pr.CIT except the following:

i. Non-verification of the fixed assets and depreciation thereon.

ii. Non-verification of the items as detailed under:

a. Proceeds from deposits

b. Transactions covered under section 40A(2)(b) of the Act

c. Cash credits

d. Current liabilities.

4. The learned DR did not raise any objection on the argument advanced by the learned AR for the assessee as discussed above. In view of the above, we limit our finding on the items/issues as discussed above. Now we proceed to adjudicate the issue in the light of the above stated discussion.

5. The learned Pr.CIT during the proceedings observed certain defects in the assessment framed under section 143(3) of the Act dated 26/03/2013 as detailed under.

Non-verification of the fixed assets and depreciation thereon

The auditor of the company in his report has categorically mentioned that the management of the company has not carried out any physical verification of the fixed assets. Thus the auditor was not in a position to find out/comment on the discrepancies if any with regard to the fixed assets shown in the financial statements. However, this fact was not verified by the AO during the assessment proceedings despite the fact that there was the remark by the auditor of the company in his audit report.

There was no verification carried out with respect to the following items:

Sl.No.	Head of Transaction	Amount (Rs.)
1.	Proceeds from deposits	2046.48 lacs
2.	Payment with related parties covered u/s.40A(2)(b), including job work charges, purchase of services, etc.	The amount runs in hundred of crores of rupees
3.	Introduction of cash credits in the books of accounts without PAN of the respective lenders	6,29,76,901
4.	Current liabilities	1,84,26,09,426

6. The learned Pr.CIT in view of the above issued show cause notices under section 263 of the Act dated 3rd September 2014 and 3rd February, 2015 proposing the order of the AO as erroneous insofar prejudicial to the interest of revenue.

6.1. In compliance to the above show cause notices, the assessee made its reply vide letter dated 10th October 2014 and 5th November 2014 by submitting that the auditor has also commented in his report that considering the size and nature of the fixed assets, physical verification of such fixed assets once in 3 years is reasonable.

6.2. The assessee also submitted that non-verification of the fixed assets does not have any impact on the income chargeable to tax.

6.3. The assessee regarding the proceeds from deposits, transactions covered under section 40A(2)(b) of the Act, cash credits and current liabilities claimed that all these items were duly verified during the assessment proceedings. Accordingly, the assessee claimed that there cannot be any error causing prejudice to the interest of revenue on account of non-verification.

6.4. In view of the above, the assessee claimed that there is no error insofar prejudicial to the interest of revenue in the order of the AO with respect to the aforesaid items.

6.5. However, the learned Pr.CIT disagreed with the contention of the assessee by observing that the assessee is entitled for the depreciation on the fixed assets in its profit and loss account if these assets are used for the purpose of the business. Therefore, it becomes imperative to verify certain facts such as existence of the fixed assets, sale, purchase of the fixed assets, theft if any of fixed assets. But the AO has not done such verification during the assessment proceedings.

6.6. The learned Pr.CIT regarding the proceeds from deposits, transactions covered under section 40A(2)(b) of the Act, cash credits and current liabilities observed that the assessee has just filed the details during the assessment proceedings which was accepted by the AO without adequate verification.

6.7. In view of the above, the learned Pr.CIT held the order passed by the AO under section 143 (3) of the Act as erroneous insofar prejudicial to the interest of revenue.

Being aggrieved by the order of the learned Pr.CIT, the assessee is in appeal before us.

7. The learned AR before us filed a paper book running from pages 1 to 671 and submitted that all the necessary details regarding the fixed assets i.e. description of assets, date and value of the assets were duly disclosed in the annexure 3A to the tax auditor report under form 3 CD. The learned AR further submitted that there was an enquiry by the AO about the details of the fixed assets during the assessment proceedings in the notice dated 22-10-2012. The learned AR in support of his contention drew our attention on pages 141 to 149 where the details of the fixed assets were furnished.

7.1. Regarding the proceeds from the deposits, the learned AR for the assessee submitted that the assessee has furnished the requisite details about the unsecured loan taken from the various parties including the confirmation from them. The learned AR in support of his contention drew our attention on pages 8, 9, 135 and 178 to 199 where the details of the unsecured loan were placed. The learned AR also claimed that if the assessee has not complied with the provisions of section 58A of the companies Act 1956 or the directive issued by the reserve Bank of India then it does not mean that there is an error in the order of the AO causing prejudice to the interest of revenue under the Income Tax Act.

7.2. Regarding the transactions covered under section 40A(2) of the Act the learned AR claimed that the assessee has carried out the transactions with the related parties at the prevailing market rate. The learned AR further claimed that all the details were furnished to the AO during the assessment proceedings and further drawn our attention on pages 295 to 671 where the details of the transactions with the related parties were placed. The learned AR further claimed that this fact was duly verified by the AO during the assessment proceedings.

7.3. Regarding the unsecured loan taken from various parties, the learned AR claimed that all the confirmations from the parties were duly furnished during the assessment proceedings. The learned AR in support of his claim drew our attention on pages 178 to 199 of the paper book where the confirmations from the parties were placed.

7.4. Regarding the current liabilities, the learned AR claimed that the details of all the provisions made in the year under consideration and the list of sundry creditors outstanding as on 31st 2009 and 2010 were duly furnished to the AO during the assessment proceedings. The learned AR in support of his contention drew our attention on pages 150 to 167 of the paper book where the details of the current liabilities were placed.

7.5. In view of the above, the learned AR claimed that the assessment was framed under section 143(3) of the Act after due application of the mind of the AO and accordingly it cannot be said that the order of the AO is erroneous insofar prejudicial to the interest of Revenue on account of non-verification.

8. On the other hand, the learned DR submitted that the proper inquiries were not conducted during the assessment proceedings by the AO. The learned DR vehemently supported the order of the learned Pr.CIT.

9. We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the Ld. Pr.CIT has held that the order of the AO as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the items as discussed above.

9.1. However, we note that the AO during the assessment proceedings has required the assessee to furnish the details of the fixed assets in the notice issued under section 142(1) of the Act dated 22-10-2012. The relevant extract of the notice is reproduced as under:

“11. Regarding additions to fixed assets, furnish the copies of major bills of additions to Fixed Assets. Give details in the following Proforma:

Fixed Asset	Asset Block	Date of Purchase	Date of putting to use	Installation expenses, freight expenses, insurance expenses incurred if any	Whether any loan taken for purchase of this asset	If loan taken, date of sanction of loan and date of first payment of interest	Depreciation claimed	Whether Additional Depreciation u/s.32(iia) claimed

If any extra charges like insurance, carriage, interest etc. have been incurred for the purchase of these assets, please provide bills.”

The assessee is response to such notice filed the reply vide letter dated 5th November 2012. The relevant extract of the letter is reproduced as under:

“9. The details of addition to fixed assets i.e. description of asset, date put to use and value of the asset is already given in Annexure-3A to the audit report under form 3CD.”

9.2. We also find that the assessee in response to the above notice has also filed the details of the assets for each block of assets which are placed on pages 141 to 149 of the paper book. Thus after perusal of the details of the fixed assets which were available before the AO during the assessment proceedings, we find that the AO after due application of mind framed the assessment under section 143(3) of the Act.

9.3. Similarly, we note regarding the proceeds from deposits and cash credit i.e. unsecured loans, that the AO during the assessment proceedings has required the assessee to furnish the details in the notice issued under section 142(1) of the Act dated 22-10-2012. The relevant extract of the notice is reproduced as under:

“8. Details of the secured loans taken from banks alongwith the Name and address of the Branch and Type of loan and the amount of loan taken. Also state the security hypothecated/mortgaged.

9. Please provide details of unsecured loans in the following Proforma:

Name of Unsecured creditor	Address	PAN	Opening Balance	Closing Balance	Whether squared up during the year	Rate of Interest Paid

10. In respect of any new unsecured loans taken and concerning any squared up loans, give confirmations of the persons and also provide the ITRs showing returned income of the lenders.”

….

19. Details of deposits along with the name & address of the person and amount.

The assessee is response to such notice filed the reply vide letter dated 5th November 2012. The relevant extract of the letter is reproduced as under:

“7. The details of secured loans along with the details of security furnished relevant to AY 2010-11 is enclosed.

8. The details of unsecured loans in the required format relevant to AY 2010- 11 is enclosed.”

9.4. We also find that the assessee in response to the above notice has filed the details of the unsecured loan which are placed on pages 137 to 140 of the paper book as well as confirmations which are placed on 178 to 199 of the Paper book.

9.5. Similarly, we note, regarding the transactions covered under section 40A(2)(b) of the Act assessee in response to the queries raised in the course of hearing has submitted vide letter dated 06/03/2013 that the transactions were carried out with the related parties at the prevailing market rate.

“In the course of hearing certain queries are raised. They are explained as under:

1. As regards Section 40A(2)(b) the assessee has made purchases from NKIL, N.K. Roadways P.Ltd. and Tirupati Proteins P.Ltd. They are all at prevailing market rate. This may be verified from the purchase invoices from the said parties and thir parties produced for your verification. Therefore the question of applicability of Section 40A92)(b) does not arise.”

9.6. We also note that the assessee has filed the complete copies of the ledgers of the transactions carried out with the related parties which are placed on pages 295 to 671 of the paper book.

9.7. Similarly, we note, regarding the current liabilities that the AO during the assessment proceedings has required the assessee to furnish the details in the notice issued under section 142(1) of the Act dated 22- 10-2012. The relevant extract of the notice is reproduced as under:

“15. Give details of outstanding provisions in the following Proforma:

Provision made for	Amount	If payment made subsequently, date of discharge of liability

16. Provide a complete list of all your sundry creditors for AY 2010-11 in the following Proforma:

Name	Nature of the creditor (Goods, other etc.)	Outstanding balance as on 31-03-2010	Outstanding balance as on 31-03- 2009, if any (Put “-“ if there was no o/s.blance)	Outstanding balance as on 31-03- 2008 (Put “-“ if there was no o/s balance)	Outstanding balance as on today (if no outstanding balance, then state the date of writing off the liability or date of payment for clearing the dues).

The assessee is response to such notice filed the reply vide letter dated 5th November 2012. The relevant extract of the letter is reproduced as under:

“7. The details of secured loans along with the details of security furnished relevant to AY 2010-11 is enclosed.

8. The details of unsecured loans in the required format relevant to AY 2010- 11 is enclosed.”

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

“13. The details of provision made relevant to AY 2010-11 is enclosed.

14. The list of creditors outstanding as on 31/03/2009 and 31/03/2010 are enclosed.”

9.8. We also note that the assessee has filed the complete details of the parties and the accounts of the provisions which are placed on pages 150 to 167 of the paper book.

9.9. In view of the above, we hold that the assessment order was framed under section 143(3) of the Act after due verification by the AO. Accordingly, we are of the view that the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the facts as stated above.

9.10. In holding so, we draw support and guidance from the judgments of the Hon’ble Courts as detailed under:

9.11. Hon’ble Supreme court in the case of Malabar Industrial Co Ltd Vs. CIT reported in 109 Taxman 66, wherein it was held as under:

“In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appeared that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous was irresistible. Therefore, the High Court had rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified.”

9.12. Hon’ble Gujarat High Court in the case of CIT Vs. Kamal Galani reported in 95 taxmann.com 261, wherein it was held as under:

“21. The Assessing Officer having carried out such detailed inquiries, it was not open for the Commissioner to thereafter reopen the issues on mere apprehension and surmises. His two fundamental objections were that the Assessing Officer did not verify whether the remittances were from the own income or sources of the assessee and his brother or were merely by way of hawala transactions. In the process, he was also critical of the Assessing Officer not insisting on collecting the details of the accounts from which the foreign remittances were made to the Indian account of the said two persons. Without any material without any basis, the CIT could not have remanded the proceedings to the Assessing Officer to carry out further inquiries in order to ascertain whether the remittances were genuine or were in the nature of hawala transactions. In the entire order of the Commissioner, we do not find any basis for him to carry such apprehension. His principle thrust was to the effect that assessee did not produce the precise bank details of the foreign remittances even before him. There is nothing on the record to suggest that he called upon the assessee to do so and the assessee failed or refused to do so.”

9.13. Hon’ble Gujarat High Court in the case of CIT Vs. Arvind Jewellers 124 taxman 615, wherein it was held as under:

“It is clear that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous, that section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the instant case, it was the finding of fact given by the Tribunal that the assessee had produced relevant material and offered explanation in pursuance of the notices issued under section 142(1) as well as section 143(2) and after considering those materials and explanation, the ITO had come to a definite conclusion. The Commissioner did not agree with the conclusion reached by the ITO. Section 263 did not empower him to take action on these facts to arrive at the conclusion that the order passed by the ITO was erroneous and prejudicial to the interest of the revenue. Since the material was there on record and the said material was considered by the ITO and a particular view was taken, the mere fact that different view could be taken, should not be the basis for an action under section 263 and it could not be held to be justified.

In view of this and following the principles laid down by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66, the Tribunal was justified in setting aside the order passed by the Commissioner under section 263.”

9.1.4 Hon’ble Gujarat High Court in the case of CIT Vs. Mehsana District Co-op. Milk Producers Union Ltd. 130 Taxman 235, wherein it was held as under:

“It is well-settled that the provisions of section 263(1) cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, and it is only when the order is erroneous that the section will be attracted. When two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. It was not shown how the method followed by the assessee to divide the expenses for the purpose of claiming relief under section 80HH was improper or unacceptable. The Assessing Officer as well as the Tribunal had found that the expenses were apportioned on a rational basis and it would not be open for the Court to go beyond that finding which appeared to have been reached on the basis of the material on record which showed that in the earlier years the same proportion for dividing the expenses was consistently followed. The department had not been able to show that for those earlier two years any objection was raised against such apportionment.”

9.15. Hon’ble Gujarat High Court in the case of CIT Vs. Amit Corporation 213 taxman 19, wherein it was held as under:

“5. We are of the opinion that the Tribunal committed no error. When, during the course of framing of the assessment, the Assessing Officer had access to all the records of the assessee, after pursuing such record the Assessing Officer framed the assessment, such assessment could not have been reopened in exercise of revision power under Section 263 of the Act for making further inquiries. In the facts of the case, in our opinion, Tribunal rightly interfered with such order. No question of law arises. Tax Appeal is, therefore, dismissed.”

9.16. After considering the facts in totality as discussed above, we conclude that the assessment was framed by the AO after considering the various details filed by the assessee. Therefore, we are not inclined to uphold the finding of the learned ld. Pr.CIT with respect to the items as discussed above. Accordingly, we quash the order passed by the Ld. Pr.CIT under section 263 of the Act to the extent of the items as discussed above. Hence, the grounds of appeal of the assessee are partly allowed.

17. In the result, the appeal of the assessee is partly allowed.

This Order pronounced in Open Court on 12/12/2019

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